Long China 2.0，New opportunities requiring new capabilities
BEIJING, September 23, 2022 /PRNewswire/ — SuperReturn Asia, one of the world’s leading private equity conferences, was held at Marina Bay Sands, Singaporeon September 19-23, 2022. The event brought together more than 800 Asia– institutional investors, fund managers and service providers from around the world to network, do business and discuss the latest market trends. Leo Zhengthe founder and CEO of Lighthouse Capital, was invited to share his observations on the current investment environment and opportunities in China. Here are some of his ideas on the timing of investment in Chinaand last environment faced with China Investment banks.
China remains a very attractive market with solid fundamentals
Currently, the logic behind China economic development is changing and China the economy has entered an era of “new normal”. The economic and industrial structure of China has undergone a major transformation. “On the one hand, China dependence on foreign trade has decreased since 2008. Specifically in 2020, China Adopted a “dual circulation” development model in which domestic and foreign markets can stimulate each other, and the economy shifted from an export-oriented economy to a combination of domestic and foreign demand-driven markets . Leo explained, “On the other hand, China GDP showed an upward trend thanks to technology-intensive industries, which means China the industrial structure continues to upgrade in the direction of greater added value.”
The transformation of the economic and industrial structure also gives rise to new opportunities in Chinaand according to Leo, there is reason to believe that China is ready to put it to good use.
First of all, China has a number of modernized factors of production that will become the growth engines of China Economy: a pool of quality talent, diversified and international financing methods and rapid development of basic technologies.
A pool of high-quality talent, as Leo mentioned, including well-trained engineers, provides new opportunities for development and investment. China the demographic dividend is shifting from low-cost to high-quality labor, and the vast talent pool of well-trained engineers will become a continued driving force for the upgrading of China industrial structure.
As for diversified and internationalized financing methods, certain favorable events that occurred in China capital markets include the establishment of the Sci-Tech Innovation Council and the Beijing Stock Exchange, as well as the new listing reform of the Hong Kong Stock Exchange. In addition, the development of venture capital has been continuously supported, providing efficient financing channels and exit methods for Chinese start-ups.
R&D core technology has always been given great attention in China. According to the World Intellectual Property Organization, China international patent applications reached 69,500 in 2021, ranking first in the world for three consecutive years.
Second, from the perspective of industrial development, Leo pointed out that China is one of the few countries that has both a huge market and a complete supply chain ecosystem. He referred to some valuable statistics, “China has a population of 1.4 billion, a middle-income population of over 400 million, with a GDP per capita of over 10,000 US dollars.” Such market volume has brought a diverse and active business ecosystem.
Moreover, it also foresaw that with multiple suppliers along the supply chain, excellent cooperation ability and complete logistics infrastructure and system, China overall sourcing efficiency is among the top global players.
Third, the Chinese government has made continuous efforts to promote long-term sustainable development. Leo gave some examples of favorable policies:
“In the Internet industry, despite anti-trust and data security policies negatively impacting Chinese concept stocks in the short term, the underlying goal of regulators is to effectively regulate the market, standardize the industry and breaking the monopoly to create an environment that encourages innovation.It is also the policy direction that has developed markets such as Europe and the United States promoted. It is important to mention that China has always been very supportive of private enterprise.”
From the above analysis, Leo concluded that through improved factors of production, an enabling environment for industrial development and supportive policies, China is changing from quantity-oriented development to quality-oriented development, and is expected to grow in the future.
The changing capacity structure of investors and financial advisers
From Leo’s point of view, China has always been a market to invest in, but China is now in a new era of investing. In this new era, investors need to evolve to have deep industry connections and have a good understanding of how technology is driving the industry.
He predicted that investment opportunities in the integration of technology and industries will come sooner. He mentioned a project to transform mining areas with robotics in Ordos. Now, such application of robotics in local specialized industries in remote areas is receiving more attention. It is the technologies capable of accelerating and deepening the transformation of industries that truly energize the primary market.
Leo further pointed out that the valuation basis is also changing. In the past, investments could only focus on single variables such as user growth or technological innovation, while industry investments should introduce more factors that affect business development. “It’s not only the quality of the technology itself, but also whether the technology has good industrial prospects.”
He also reminded investors that the industry’s business entry threshold is higher than that of the Internet. Companies are increasingly seeking the industrial resources of shareholders.
With the themes above, Leo highlighted two requirements of long-term investors. On the one hand, they need to identify opportunities and seize projects earlier through thorough research, with many industrial projects hidden behind the curtains. On the other hand, they need to exercise patience to form the link of the industrial chain and better help enterprises strike a balance between industrialization and business growth. “In the future, China will look to proactive investors who root themselves in the industry and hold the key to successful investment in the industry.”
Managed by Leo and his partners, Lighthouse Growth Fund is a proactive fund dedicated to taking root in the industry. The Fund, equipped with the diverse systems of capabilities and resources of Lighthouse Capital’s market-leading financial advisory business, can take full advantage of the financial advisor’s high-quality deal flow, and through thorough research and service , it is an effective tool for realizing long-term value with all partners.
Lighthouse Capital, with a global perspective, is exactly what a leading investment bank is in China should be like.
“With investment banking as a core business, we can continue to help companies raise capital, and we have set up a value-added service to help entrepreneurs recruit people; set up an advisory team in industrial development to help entrepreneurs promote industrialization; set up M&A Team to help companies have a more diversified choice of capital markets To date, we have helped more than 200 companies to finance an accumulation of more than 32 billion US dollars. Have a good leadership position in China allows us to see the right opportunities earlier and seize the right assets. And the ecosystem built by Lighthouse can deeply empower businesses after investment,” concluded Leo.
SOURCE Capitale Phare